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A Successful Retirement Takes Strategic Planning.

Whether retirement is 10 years away, or you turned in your employee badge for the last time 10 years ago or more, it’s critically important to have a carefully planned and executed retirement plan, along with the ability to nimbly adjust amidst an ever-changing landscape.

For some clients, retirement conversations come easily, and phrases like index funds and required minimum distributions are familiar. For others, these can be foreign concepts and in fact very daunting. If you find yourself in either scenario (or somewhere in between!), having a plan in place to address the different aspects of a secure retirement is paramount.

Typically, we find that clients in or entering retirement need a plan that addresses the following risks:

  • SPEND Rate Risk – perhaps the most basic, yet most important question to answer is: if I retire (or have already retired), what amount of money can I prudently spend on an annual or monthly basis?  Importantly, how do I craft a plan that makes sure I don’t spend TOO much money early in retirement and risk depleting all of my assets prematurely?  Conversely, we often find that clients need encouragement to spend some of their hard-earned (and invested) money, and want to know how they CAN enjoy these resources, and not end up later in life regretting the things they wish they did earlier in retirement!
  • Longevity Risk – this is tied to #1 above, but it’s imperative that when one retires, they understand the possibility that they may live longer than expected. In fact, it’s expected that for a married couple at age 65, there is a 44% that at least one spouse will live to be 95 years old! We’ve found that clients that have a good long-term plan that addresses this risk have so much more freedom to enjoy the early years of retirement.
  • Investment Risk – for most long-term investors, this risk is well-known, and often the only conversation that other financial advisors have had with them. This is the risk that investments do not perform as expected, or perform in ways and patterns not previously predicted.
  • Sequence of Return Risk – this is related to investment risk but is specific to retirement. This is the risk that as we withdraw money from accounts in retirement, negative years at certain points (particularly in the early years) of retirement can have an outsized negative effect on long-term financial security. In other words, if there are market downturns and too much money is being withdrawn, even though the markets will eventually recover, the money isn’t still in the account to recover. Interestingly, this risk doesn’t materialize as clients accumulate wealth – better or worse market years early or later in accumulation doesn’t impact performance on average, but has an outsized impact during the distribution years.
  • Inflation Risk – simply stated, this is the reality that costs tend to go up over time, and prudent financial planning dictates that we account for this and invest in such a way to mitigate this drag on purchasing power.
  • Tax Risk – whether recognized or not, taxes take a big bite out of client nest eggs. This is especially true when taking money out of retirement accounts like IRAs, 403(b) accounts, and 401(k) accounts, but also comes into play for taxable accounts with large gains, Social Security income, pension income, etc. Too often, clients haven’t calculated the impact that taxes will have on their income and assets, haven’t proactively planned for how to reduce their overall tax liability for the duration of retirement, and haven’t planned for potential tax law changes in the future.
  • Healthcare Cost / Long-Term Care Risk – after housing, the cost of health care typically grows to be the biggest cost for a retired household. Additionally, the risk of one more members of the household needing long-term care can be a challenging variable when planning for retirement. How to address and minimize these costs and risks continues to be a critical component of effective retirement planning.
  • Estate and Inheritance Risk – generally, a successfully executed retirement plan means that there will be assets left to beneficiaries. Many clients have not thought about which assets they should leave to which beneficiaries (i.e. children, grandchildren, charities), and when this should take place. Gifting strategies throughout a client’s lifetime, utilization of trusts, and sophisticated tax planning can go a long way in fulfilling client desires. However, the most critical aspect is communication – facilitating meaningful conversations between all parties to achieve a successful outcome.

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